Working Paper 2007:24

Department of Economics

DOES MICROFINANCE
EMPOWER WOMEN?
Evidence from Self Help Groups
in India
Ranjula Bali Swain and Fan Yang Wallentin
Department of Economics Working paper 2007:24
Uppsala University August 2007
P.O. Box 513 ISSN 1653-6975
SE-751 20 Uppsala
Sweden
Fax: +46 18 471 14 78

DOES MICROFINANCE EMPOWER WOMEN?

EVIDENCE FROM SELF HELP GROUPS IN INDIA

RANJULA BALI SWAIN AND FAN YANG WALLENTIN

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 DOES MICROFINANCE EMPOWER WOMEN?1
Evidence from Self Help Groups in India

Ranjula Bali Swain and Fan Yang Wallentin2

August 24, 2007

Abstract

Microfinance programs like the Self Help Bank Linkage Program in India have been
increasingly promoted for their positive economic impact and the belief that they empower
women. However, only a few studies rigorously examine the link between microfinance and
women’s empowerment. This paper contributes by arguing that women empowerment takes
place when women challenge the existing social norms and culture, to effectively improve
their well being. It empirically validates this hypothesis by using quasi-experimental
household sample data collected for five states in India for 2000 and 2003. A general
structural model is estimated by employing appropriate techniques to treat the ordinal
variables in order to estimate the impact of the Self Help Group (SHG) on women
empowerment for 2000 and 2003. The results strongly demonstrate that on average, there is a
significant increase in the women empowerment of the SHG members group. No such
significant change is observed however, for the members of the control group. The elegance
of the result lies in the fact that the group of SHG participants show clear evidence of a
significant and higher empowerment, while allowing for the possibility that some members
might have been more empowered than others.

JEL-Classifications: G21, J16, C33

Keywords: Microfinance; Women empowerment; Ordinal variables; General structural
model and Robust maximum likelihood estimation.

1
The authors gratefully acknowledge the critical comments and suggestions from Maria Floro, Anders
Klevmarken, Per Johansson the participants at the seminar in IRIS, University of Maryland, Economics
Department at the American University, Swedish International Development Cooperation Agency (Sida),
International Conference on Research in Rural Finance, FAO, Rome and Annual Conference of International
Association of Feminist Economics, Bangkok.
2
The authors are assistant professor at the Department of Economics and associate professor at the Department
of Information Science, Division of Statistics, Uppsala University.
1. INTRODUCTION

Albert Einstein once said, “The significant problems we face cannot be solved by the same

level of thinking that created them”.3 He might not have been talking about women

empowerment, but the quote is just as relevant in explaining the approach this paper takes in

exploring it. Within the South Asian context, women empowerment is viewed as a process in

which women challenge the existing norms and culture, to effectively improve their well

being. Using this interpretation, the paper investigates the impact of microfinance on

empowering women, using 2000 and 2003 household survey data on Self Help Group bank

linkage program4 in India.

In recent years, governmental and nongovernmental organizations in developing countries

have introduced microfinance programs offering financial services to low income households,

specifically targeting women. This was based on the promise that women in poor households

are more likely to be credit constrained, and hence less able to undertake income-earning

activities. Access to credit has received even greater attention in the context of poverty

reduction and women’s empowerment objectives. With the aim to meet the Millennium

Development Goals5 and microfinance programs’ role in supporting it, there has been an

increasing expectation on their impact on women empowerment. However, only a few studies

have successfully investigated this impact in a rigorous manner (Pitt et. al, 2006).

For the most part, empirical research on microfinance’s effect on women’s empowerment has

been conceptually ungrounded and tends to estimate an over-extended definition of

3
Cited from Albert Einstien: The Human Side, edited by Helen Dukas and Banesh Hoffman, 1954.
4
In the early 1990s the National Bank for Agriculture and Rural Development (NABARD) started on a new
nation-wide microfinance initiative linking banks, non-governmental organisations (NGOs) and informal local
groups (self-help groups or SHGs). This SHG bank linkage program is expected to become a dominant form of
financial access for the rural women.
5
The Millennium Development Goals (MDGs) were agreed at the United Nations Summit in September 2000 by
nearly 190 countries. MDG goal 3 aims at promoting gender equality and empowering women.

2
empowerment or a truncated aspect of it (Goetz and Gupta, 1996, Hashemi et. al, 1996). A

number of these studies also suffer from possible bias due to endogeneity of decisions

involved in program participation and the unobserved households, individual, and area

characteristics. Measuring women empowerment is another problem, as it cannot be directly

observed and has multiple facets. Past studies on women empowerment have also suffered

from treating ordinal variables as continuous variable and treating the latent variable of

women empowerment as observed.

This paper contributes by arguing that women empowerment takes place when women

challenge the existing norms and culture, to effectively improve their well being. Since

women empowerment is unobservable it is measured as a latent variable. In contrast to

previous studies, the measurement model does not treat the latent variable as observed.

Moreover, it employs appropriate techniques to treat the ordinal variables in the structural

equation models. The general structural model estimates the mean women empowerment for

2000 and 2003, to measure the impact of the SHG program on women empowerment. The

empirical analysis is based on data collected by the author in 2003 from five different states of

India. Using quasi-experimental sampling design 1000 households (both SHGs and non-SHG)

were surveyed and their responses were recorded for the years 2003 and 2000 (by recall).

The results are especially robust thus indicating that on average there is a significant increase

in the women empowerment of the SHG members group. No significant change is observed

on average for the members of the control group. The elegance of the result lies in the fact

that even though the degree of change and the pace of empowering women is likely to vary,

nevertheless the results clearly show that the group of SHG members experience a significant

and higher empowerment.

3
The paper is organised as follows. Section 2 gives a brief overview of the literature on impact

of microfinance on women empowerment, followed by a section on the conceptual and

theoretical framework. Section 4 describes the data, its characteristics and indicators of

women empowerment. Under Section 5, we discuss the measurement problems, explain the

treatment of the ordinal variables and present the measurement and the structural models. The

next sub-section explains the estimation technique used in the paper. The final section

presents the results and conclusions.

2. MICROFINANCE AND EMPOWERMENT

A majority of microfinance programs target women with the explicit goal of empowering

them. However, their underlying premises are different. Some argue that women are amongst

the poorest and the most vulnerable of the underprivileged. Others believe that investing in

women’s capabilities empowers them to make choices, which is valuable in itself, and also

contributes to greater economic growth and development. Another motivation is the evidence

from literature that shows that an increase in woman’s resources result in higher well-being of

the family, especially children. Finally, an increasing number of microfinance institutions

prefer women members as they believe that they are better and more reliable borrowers

thereby contributing to their financial viability.6 A more feminist point of view stresses that

access to financial resources presents an opportunity for greater empowerment of women.

Though many agree that women empowerment is an important development objective for

microfinance programs, it is still unclear what women empowerment means.7

6
For further discussion on this refer to Armendariz de Aghion and Morduch (2005), pages 179 – 195.
7
For a detailed survey of the literature on women empowerment and the impact of microfinance on women
empowerment, refer to Bali Swain (2007).

4
In an insightful reflection on the measurement of women’s empowerment, Kabeer (1999)

explains that women’s empowerment refers to the process by which those who have been

denied the ability to make strategic life choices acquire such ability. This ability to exercise

choice incorporates three inter-related dimensions: resources which include access to and

future claims to both material and social resources; agency which includes the process of

decision-making, negotiation, deception and manipulation; and achievements that are the

well-being outcomes.

Given the complexity of defining women empowerment it is not surprising that only a few

empirical studies have tried to examine the impact of microfinance on women empowerment.

Most of these studies suffer from bias due to the endogenous nature of the program

participation and unobserved household, individual and area characteristics. The

unavailability of appropriate data that includes comparable control and treatment groups is a

further constraint.

The interpretation of women empowerment and its measurement also varies across different

studies. Most researchers construct an index/indicator of women empowerment. Ackerly

(1995) creates an indicator, “Accounting Knowledge”, to measure the probability that the

changes associated with empowerment intervene. Goetz and Sen Gupta (1996) build an index

of Managerial Control in order to classify the borrowers into five categories ranging from no

control (no knowledge of the use of the loan or no contribution in terms of labour to the

financed activity) to full control of the use of the loans (full control over the entire productive

process, including marketing).

5
In another study, Hashemi, Schuler and Riley (1996) investigate the change in women

empowerment with the help of an ethnographic study and quantitative survey. The analysis

uses 1,300 women sample data to measure the effects of Grameen Bank and Bangladesh

Rural Advancement Committee. They create an empowerment indicator build on the

following eight criterions: mobility, economic security, ability to make small purchases, large

purchases, involvement in major household decisions, and relative freedom from domination

by the family, political and legal awareness, participation in public protests and political

campaigns.

Measuring women empowerment by constructing indices is an inappropriate technique as it

allows the use of arbitrary weights. Most researchers, for instance, will agree that impact of a

women’s decision to buy cooking oil for the family is different in nature from her

participation in a decision to buy a piece of land. Both these decisions have different

implications and magnitude of impact on her empowerment. As such giving equal weightage

to both these decisions does not make sense. At the same time suggesting an arbitrary weight

for these decisions is also inappropriate, as it is not for the researchers to decide the factor by

which the latter decision contributes more to women empowerment.

In a comprehensive study, Pitt et al. (2006), use Item Response Theory (IRT), where the

element of analysis is the whole pattern of a set of binary indicators that proxy for woman’s

autonomy, decision-making power, and participation in household and societal decision

making. They find that credit programs lead to women taking a greater role in household

decision making, having greater access to financial and economic resources, having greater

access to financial and economic resources, having greater social networks, more bargaining

power vis-à-vis their husbands and having greater freedom of mobility.

6
Additional services like training, awareness raising workshops and other activities over and

above the minimalist (financial services only) microfinance approach are also an important

determinant of the degree of its impact on the empowerment process of women. Holvoet

(2005) finds in her study of women in rural Kenya that in direct bank-borrower minimal

credit, women do not gain much in terms of decision-making power within the household.

However, when loans are channelled through women’s groups and are combined with more

investment in social intermediation, substantial shifts in decision-making patterns are

observed. This involves a remarkable shift in norm-following and male decision-making

towards more bargaining and sole female decision-making within the household. She finds

that the effects are even more striking when women have been members of a group for a

longer period and especially when greater emphasis has been laid on genuine social

intermediation. Social group intermediation had further gradually transformed groups into

actors of local institutional change.

Another issue that needs further investigation is whether without change in the macro

environment8, does microfinance reinforce women’s traditional roles or does it promote

gender equality? A woman’s practical needs are closely linked to the socially defined gender

roles, responsibilities, and social structures, which contribute to a tension between meeting

women’s practical needs in the short-term and promoting long-term strategic change. By

helping women meet their practical needs and increase their efficacy in their traditional roles,

microfinance may in fact help women to gain respect and achieve more in their socially

defined roles, which in turn may lead to increased esteem and self-confidence. Therefore as

Cheston and Kuhn (2002) argue increased self-confidence does not automatically lead to

8
The overall economic, social, political and cultural environment.

7
empowerment, it may contribute decisively to a woman’s ability and willingness to challenge

the social injustices and discriminatory systems that they face. This implies that as women

become financially better-off their self confidence and bargaining power within the household

increases and this indirectly leads to their empowerment. Finally, given that empowerment is

a process the impact of the microfinance program may take a long time before it is

significantly reflected on the observable measures of women empowerment.

3. THEORETICAL FRAMEWORK

This paper argues for a more coherent interpretation of women empowerment using Kabeer’s

notion of women empowerment within the South Asian context. It therefore defines women

empowerment as the process in which women challenge the existing norms and culture of the

society in which they live to effectively improve their well-being. A distinction is made

between the outcomes that lead to greater efficiency within the existing norms, development

of the community and outcomes that can be directly interpreted as women empowerment.

As argued in Bali Swain (2007) not all activities that lead to an increase in well-being of a

woman are necessarily empowering in themselves. For instance, activities like improvement

in nutrition of children, lead to greater efficiency in the woman’s role in the household but it

also falls within the existing role of the women within the prevailing norms of the society.

When a woman is better able to perform such activities, it leads to an increase in her self-

confidence and feeling of well being. This might create conditions leading to woman

empowerment, but are not empowering on their own. Similarly, Community Driven

Development activities, undertake under the initiatives of the SHGs – for instance, solving

drinking water problems in the village, reduces the demand on a woman’s time while leading

to better health of all household members, particularly children. However, most of these

8
activities are for the welfare of the household (including women) or the community at large

but are not directly empowering as they re-inforce the existing gender roles within the society.

According to our definition, the truly empowering activities are those that reflect the changes

that women have effectively made to better their lives by resisting the existing norms of the

society. Thus, for instance, if a woman offers greater resistance to any form of abuse from her

husband or family, we consider her more empowered as she is trying to improve her well-

being by asserting herself. Table 1 in the Appendix gives a list of such women empowering

activities that we have drawn from the focus group discussions that were conducted in

addition to the survey data.

How does then microfinance lead to women empowerment? This is essentially through two

mechanisms direct and indirect empowerment effects. The direct empowerment through

microfinance takes place, when women become members of a group and/or when they are

exposed to training or workshops leading to greater awareness creation.9 Microfinance also

leads to increase in women empowerment through indirect channels. In a collective decision

making model, Browning and Chiappori (1998) show that if behaviour in the household is

Pareto efficient, the household’s objective function takes the form of a weighted sum of

individual utilities. The individual weights can represent the bargaining power of the female

members in the household relative to the male household members, in determining the intra

household allocation of resources. In the literature it is assumed that by increasing the relative

value of female time and her money income, the weight and hence the bargaining power of

9
By its very nature, microfinance is administered to individuals via groups. Belonging to a group leads to the
creation of further social capital and a support structure (of other group members) that empowers women to
improve her overall (not just economic) well-being. Furthermore, most microfinance programs encourage
frequent group meetings, interaction with loan officer or bank officials, keeping of financial records – these
activities encourage discussions on issues related to economic activities but also other household and village
issues, mobility, increase in confidence and literacy, thereby empowering the women by improving their
condition within the household, village and society. Moreover, several microfinance programs encourage
awareness creation via training, workshops and informal interaction about the political, social and economic
situation of women and thereby encourage them to improve their personal situations within the household and
the society that they live in.

9
the female members can be increased within the household. This ‘weight’ may also be altered

by social pressure. The weight parameter may thus reflect the women’s power within the

household decision making and maybe one index of women empowerment.

Within our conceptual framework the empowerment level of women is determined by their

behavioural reactions to situations that reflect their well-being and indirect empowerment that

they attain due to participation in labour market or greater economic independence.

4. DATA

The data used for the estimation of the impact of SHGs on women empowerment is a part of a

larger study that investigates the impact of SHG bank linkage program on poverty,

vulnerability and social development. The SHG program of the National Bank for

Agriculture and Rural Development (Nabard) in India is the largest and fastest-growing

microfinance program in the developing world. Implemented since 1996 on a national scale, it

has reached an estimated 121.5 million people in March 2005, by mainly targeting women. It

has disbursed more than Rs. 68 billion in cumulative bank loans up to March 2005, using a

network of 41,082 bank branches and 4,323 Non Governmental Organisations (NGOs).

For the analysis in this article, only the household survey data is used. The household survey

uses a quasi-experimental design to address the ‘problem of attribution’10. The data is

10
The “problem of attribution” refers to the difficulty in establishing unequivocally that the observed changes in
the economic and social status of the members of the SHGs, are induced by the formation of SHGs and the
related component of micro finance, and not as a consequence of other possible causes arising due to the
changing economic, political, social, cultural or policy environment. To address this problem a quasi-
experimental design is chosen where information is collected on the SHG households and a control group, which
contains information on non-participating households of similar household characteristics. The difference in the
results of these two groups would therefore reflect the real impact of SHG bank linkage program.

10
collected from two representative districts each for five different states11 in India, for 2003.

The data for the year 2000 is recall data. For our purpose the sampling strategy was to

randomly choose the respondents from the SHG members at the district level. The members

of the control group were chosen to reflect a comparable socio-economic group as the SHG

respondents. These were selected from villages that were similar to the SHG villages in terms

of the level of economic development, socio-cultural factors and infra-structural facilities, but

did not have a SHG program in their village.

Table 1. Sample Characteristics (mean values with standard deviations in the

parenthesis)
All SHGs Control group
Age of respondent (yrs.) 34.5 33
(8.9) (9.6)
Total value of land owned in July 2000 24,263 37,987
(Rs.) (59,524) (138,382)
Total value of land owned end of 2003 34,172 51,274
(Rs.) (91,587) (209,786)
Total value of assets in July 2000 (Rs.) 84,359 111,226
(138,089) (313,003)
Total value of assets by end of 2003 (Rs.) 116,757 149,966
(192,398) (326,497)
Percentage of respondents that are main
earners of the household 19.6 15.5
Percentage of respondents that are earning
81.9 78.7
Percentage of respondents that are literate
33.12 39.36
Percentage of respondents engaged in farm
activity and agricultural wage labour 57.32 54.2
Percentage of respondents with increase in
household income since July 2000 65.7 46.4
Percentage of respondents with increase in
own income since July 2000 64.02 39.36
* Source: Author’s data.

11
These states (districts in parentheses) are Orissa (Koraput and Rayagada), Andhra Pradesh (Medak and
Rangareddy), Tamil Nadu (Dharamapuri and Villupuram), Uttar Pradesh (Allahabad and Rae Bareli),
Maharashtra (Gadchiroli and Chandrapur).

11
The sample data consists of 961 households.12 The sample includes a group of SHGs

members that have participated in the program (805) and a control group (156). Table 1 gives

selected characteristics of the household sample for these two groups. The groups are also

similar in terms of percentage of earners, literacy level and proportion of respondents engaged

in farm activity. Both the SHG and the control group also show similar characteristics in

terms of the average age of the respondent. However, the control group is slightly better off in

terms of the total value of land owned and the average level of assets owned. Interestingly,

about 64 percent of the SHG members reported an increase their own income over the survey

period as compared to 39 percent of the control group respondents.

The household survey provides us with a longitudinal data on the various indicators of women

empowerment for 2000 and 2003. As argued earlier in this paper, woman empowerment is

interpreted as the process in which women challenge the existing norms and culture of the

society in which they live to effectively improve their well-being. Women’s empowerment

therefore encompasses different spheres of a woman’s life. Literature on intra-household

bargaining finds that exogenous increases in female share of income maybe interpreted as

providing the women more power within the household. Hence participation in the labour

market and greater economic independence leads to empowerment. In our analysis this is

proxied by the primary economic activity that the respondent is engaged in and the degree of

respondent’s control over her own independent savings. It is assumed that an economically

active woman with her own independent savings has more economic power and thus a higher

bargaining power within the household, thereby making her more empowered (Ashraf, Karlan

and Yin, 2006) and likely to challenge the prevailing norms that restrict her ability to make

choices.

12
Actual sample size used in the estimation was 961.For estimation our model as explained later in the paper,
the data should meet the equal categories property, therefore those seven observations could not be included.

12
According to our definition, behavioural changes in the women within the household to

improve her own well-being are also crucial indicators of empowerment. This is especially

important because, a growing body of literature has begun to question if microfinance re-

enforces traditional gender roles, as women tend to make choices that fall within the scope of

the traditional up-bringing that are rewarded by the society. In the household survey

respondents were asked questions on what they would do if they were (a) verbally abused; (b)

physically battered; and (c) psychologically/emotionally abused within their family? In

response to these questions the respondents make any one of the following ordinal choices to

reflect their degree of resistance or submission, which is a more direct reflection of their

empowerment status within the household. For instance, the respondent could choose to reply

with any one of the following options: (a) resisted, (b) submitted herself, or (c) lodged a

complaint in the group or took their help, (d) complained to relatives, (e) warned or (f) did

nothing.

A woman’s participation in the political space is also an important indicator of empowerment.

The respondents are asked if they are aware that women had reservations in the local political

institutions called panchayats. They are also interrogated on their involvement in the village

level politics, for instance, standing for local elections as a candidate, voting etc. Information

on these two indicators is used to proxy for the ‘political activism’ aspect of woman

empowerment.

Other aspects of empowerment that are considered are the indicators of women’s decision-

making regarding their work, household matters as well as their mobility and participation in

social networks. Although information on these two aspects of empowerment is available for

2003, the questions were not asked for 2000. Due to this data constraint it is expected that

13
there will be a downward bias in our estimate of the impact of the Self Help Group program

over time.

5. EMPIRICAL ANALYSIS

5.1 MEASUREMENT ISSUES

Like cognitive skills and quality of life, women empowerment is a concept that cannot be

measured directly. Some empirical microfinance impact studies use the index approach.

Within the index approach responses to questions related to empowerment issues are

weighted and summed in an aggregate score that represents the empowerment. For instance,

each positive response might be given one point and the final empowerment index for the

respondent could be the aggregate of all the points. Studies might use one weight or construct

multiple scales for different indicators of women empowerment. However, such an approach

is problematic because the weights are allocated arbitrarily without reference to theory or the

characteristics of the sample data.

Factor analysis model is typically used for latent variable measurement but the standard factor

analysis measurement model is inappropriate when the indicators are discrete as is the case

with our data on empowerment. In order to determine whether or not credit program

participation has an empowerment effect, Pitt et al. (2006), use a cross-section household

sample of data with binary responses on attitudes by and towards women. Using the item

response approach, they estimate a random effects binary response model. The latent factor of

women empowerment is then an estimate of the random effect (factor) conditional on the

fitted parameters and the data. Obtaining the empirical Bayesian prediction of the latent

variables from this model, Pitt et al. estimate various structural models by OLS, fixed effects,

and, causal models, by two-stage least squares with fixed effects.

14
Several studies including Pitt et al. (2006) and Frankenberg and Thomas (2001) make a case

for using data on attitudes of and towards women within the household. Given that our data is

self-reported, subjective and ordinal in nature, it is important to recognize that appropriate

methodology is used to treat. Ordinal variables have categories as values, which cannot be

treated like a continuous variable. For instance, consider that a respondent who is asked the

following question: “What do you do if you are verbally abused in your family?” Her reply is

one of the following categories: 1 if she resists; 2 if she submits herself, 3 if she complains in

the group or takes their help, 4 if she complains to the relatives, 5 if she warns against such

behaviour and 6 if she does nothing. In case of such a variable, a number allocated to the

category has no meaning by itself. Moreover, considering the different categories of the

responses to this question, it is difficult to know by how much more the respondent resists if

she would have chosen category 4 over category 5. Secondly, even if the respondent chooses

the same category, say category 4, we don’t know the magnitude of her resistance.

Furthermore, even if two different respondents choose the same category 4, we cannot say

that their magnitude of resistance to the verbal abuse is the same. This is why the ordinal

variables need to be treated as ordinal variables and require special treatment. This is further

discussed in the following section.

Another limitation of previous empirical studies has been the use of estimated latent scores as

observed variables in order to establish the relationship between credit program and women

empowerment. Finally most studies, in the past have analysed the household data by trying to

establish the empowerment at the individual level. There is a need for studies to estimate a

more general structural equation model which can estimate the change in women

empowerment for the whole group.

15
5.2 TREATMENT OF ORDINAL VARIABLES

Ordinal variables in the data represent responses to a set of ordered categories. It is assumed

that a person who selected a specific category has more of a character than if she/or he had

selected a lower category. Therefore ordinal variables do not have origins nor units of

measurements. Means, variances and covariances of ordinal variables have no meaning. The

only information we have are counts of cases in each cell of a multiway contingency table.

Moreover, longitudinal data tends to have measurement errors that are correlated over time

due to specific factor, memory or other retests effects. It is important to consider models that

adequately deal with correlated measurement errors. The use of ordinal variables in structural

equation models and longitudinal studies requires specific techniques and procedures that

differ from those employed for continuous variables.

In our analysis we adopt the terminology of K. G. Jöreskog (2002) to refer to an unobserved

univariate continuous distribution that generate an observed ordinal distribution as a latent

response distribution. This means that for each ordinal variable y, we assume that there is an

underlying continuous variable y*. This continuous variable y* represents the attitude of the

ordinal responses to y and is assumed to have a range from -∞ to +∞. It is this underlying

variable y* that is used in structural equation modelling, and not the observed ordinal variable

y. The underlying variable assigns a metric to the ordinal variable. The relationship between

an underlying continuous variable y* and an observed ordinal variable y is formalized as

following

If y has m categories labelled 1, 2, …, m, the connection between y and y* is

y = i ⇔ τ i −1 < y * < τ i , i = 1, 2, …, m,

where − ∝ = τ 0 < τ 1 < τ 2 < ... < τ m−1 < τ m = + ∝

16
are threshold values as parameters defining the categories i. With m categories, there are m-1

threshold parameters τ1, τ2, ..., τm-1 . Since we have only ordinal information, the distribution of

y* is determined only up to a monotonic transformation. Next, we choose the distribution for

y*. Generally, we can choose any continuous distribution. In this analysis, we choose the

standard normal distribution with density function φ(u) and distribution function Φ(u) for y* .

The probability of a response in category i is

π i = P( z = i ) = P(τ i−1 < z * < τ i ) = ∫ φ (u )du = Φ(τ i ) − Φ(τ i−1 ) ,

τi
so that
τ i −1

τ i = Φ −1 (π 1 + π 2 + ... + π i ), i = 1,..., m − 1,

where Φ-1 is the inverse of the standard normal distribution function. The quantity (π1 + π2

+…+ πi) is the probability of a response in category i or lower. The πi’s are unknown

population quantities and can be estimated consistently by the corresponding percentage pi of

responses in category i. Then, estimates of the thresholds can be obtained by

τˆi = Φ −1 ( p1 + p2 + ... + pi ), i = 1,2,..., m − 1.

The quantity (p1 + p2 +…+ pi) is the proportion of cases in the sample responding in a given

category i or lower. In fact, τˆi is the maximum likelihood estimator of πi based on the

univariate marginal sample data.

In order to estimate differences in means and variances of latent variables over time, one must

ascertain that the latent variables are on the same scale in the two time periods. This implies

that both the origin and the unit of measurement must be invariant or the same over time. If

17
the observed variables are continuous this can be achieved by anchoring each latent variable

in one of its indicators (reference variable) and by assuming that the latent variable has mean

zero in one time period. By choosing the same reference variable for both the time periods we

can be certain that the latent variable is on the same scale over time. This will not be

sufficient, however when observed variables are ordinal, since the latter do not have metric

scales. For this reason, one must use the underlying variables instead of observed ordinal

variables. The underlying variables can be put on the same scale by assuming equal

thresholds (see Jöreskog, 2002) for the underlying variables of the same ordinal variable

across time.

5.3 MODEL SPECIFICATION

The women empowerment model consists of three parts. The Measurement model for the

years 2000 and 2003 and the general structural model.

5.3.1 MEASUREMENT MODEL

Figure 1 gives a graphical presentation of the women empowerment model. The squares in

the figure indicate the observed variables whereas the ellipses represent the women

empowerment latent variable. The measurement model is given by women empowerment at

the year 2000 and 2003 (see Jöreskog and Sörbom, 1999).

⎛ y1 ⎞ ⎛⎜τ 1 ⎞⎟ ⎛ 1 ⎞
( y)
⎛ x1 ⎞ ⎛ τ 1 ⎞ ⎛ 1 ⎞ ⎛ δ1 ⎞ ⎛ ε1 ⎞
⎜ ⎟ ⎜ ⎟ ⎜ ⎟ ⎜ ⎟ ⎜ ⎟ ⎜ ⎟ ⎜ ⎟
⎜ y2 ⎟ ⎜τ 2 ⎟ ⎜ λ2 ⎟
( y)
⎜ x2 ⎟ ⎜τ 2 ⎟ ⎜ λ2 ⎟ ⎜δ 2 ⎟ ⎜ε2 ⎟
⎜ x ⎟ ⎜τ ⎟ ⎜ λ ⎟ ⎜δ ⎟ ⎜ y ⎟ τ3⎜ ( y ) ⎟ ⎜λ ⎟ ⎜ε ⎟
⎜ 3⎟ ⎜ 3⎟ ⎜ 3⎟ ⎜ 3⎟ ⎜ 3 ⎟ ⎜ ( y) ⎟ ⎜ 3 ⎟ ⎜ 3⎟
⎜ 4 ⎟ = ⎜ 4 ⎟ + ⎜ 4 ⎟(ξ ) + ⎜ δ 4 ⎟ ;
x τ λ ⎜ 4 ⎟ = 4 + ⎜ 4 ⎟(η ) + ⎜ ε 4 ⎟
y ⎜ τ ⎟ λ
⎜ x5 ⎟ ⎜τ 5 ⎟ ⎜ λ5 ⎟ ⎜δ5 ⎟ ⎜ y5 ⎟ ⎜τ ( y ) ⎟ ⎜ λ5 ⎟ ⎜ε5 ⎟
⎜ ⎟ ⎜ ⎟ ⎜ ⎟ ⎜ ⎟ ⎜ ⎟ ⎜ 5( ) ⎟ ⎜ ⎟ ⎜ ⎟
⎜ x6 ⎟ ⎜τ 6 ⎟ ⎜ λ6 ⎟ ⎜δ 6 ⎟ ⎜ y6 ⎟ ⎜τ 6 y ⎟ ⎜ λ6 ⎟ ⎜ε6 ⎟
⎜ x ⎟ ⎜τ ⎟ ⎜ λ ⎟ ⎜δ ⎟ ⎜ ⎟
⎜ y ⎟ ⎜ ( y) ⎟ ⎜ λ ⎟ ⎜ε ⎟
⎝ 7⎠ ⎝ 7⎠ ⎝ 7⎠ ⎝ 7⎠ ⎝ 7 ⎠ ⎝τ 7 ⎠ ⎝ 7 ⎠ ⎝ 7⎠

18
Where x’s are the measures of latent women empowerment ξ at year 2000 and y’s are the

measures of latent women empowerment η at year 2003. The latent variable ξ denotes

Women Empowerment at year 2000; η denotes Women Empowerment at year 2003. α

indicates the change in women empowerment over the time. And where δ and ε are the

measurement errors.

Figure 1. Path Diagram for Women Empowerment Model

Primary
Activity 00 Primary
Activity 03

Verbal Verbal
Abuse 00 Abuse 03

Physical
Physical
Abuse 00
Abuse 03
We00 We03

Emotional
Abuse 00 Emotional
Abuse 03

Awareness
of rights 00 Awareness
of rights 03

Politically Politically
Active 00 Active 03

Independent Independent
Savings 00 Savings 03

5.3.2 STRUCTURAL MODEL

The structural model used for analyzing women empowerment is given by:

η = α + Β η + Γξ + ς

where η is the latent women empowerment of the respondent at year 2003 and ξ denotes the

latent Women Empowerment in year 2000. ζ indicates the error in the structural equation

(see Jöreskog and Sörbom, 2001).

19
5.4 ESTIMATION METHOD

The Robust Maximum Likelihood (RML) (see Jöreskog, et. al 2001) method has been used

for analyzing Women Empowerment data. The RML uses the following fit function

F (θ ) = log || Σ || +tr ( SΣ −1 ) − log(S ) − k − ( z − μ )′Σ −1 ( z − μ )

Where z is the vector of observed responses (containing both y and x). Σ is the population

covariance matrix and S is corresponding sample covariance matrix. Central to the

development of the traditional maximum likelihood estimator is the assumption that the

observations are derived from a population that follows a multivariate normal distribution.

This assumption is not valid in our data because of ordinality. Therefore, RML is used to

obtain the same fit function as traditional Maximum Likelihood in order to get the parameter

estimates. While the asymptotic covariance matrix is used to estimate the correct standard

errors and chi-squares under the non-normality (caused by ordinality).

6. RESULTS AND CONCLUSIONS

To investigate the impact of microfinance participation on women empowerment the data was

analyzed over two sub-samples namely: SHGs members group and a control group comprised

of non-SHG members. The results are presented under Table 2 and Table 3. The results

indicate that the variances of the Women Empowerment in both groups have decreased over

time. For the SHG group members it decreased dramatically from 7.57 to 1.66 (Table 2)

whereas, for the control group it declined from 0.33 to 0.20 (Table 3). The result indicates that

the population is more homogenous in 2003, as compared to 2000. This further implies that

the wide variation in the level of women empowerment, especially within the SHG members

group declined, as the disparity in the empowerment among the SHG members decreased.

20
The results from the general structural model confirm that the mean difference is highly

significant for program group at 0.26 (Table 2) but statistically non-significant for the control

group at 0.07613 (see Table 3). This indicates that there is a significant increase in the level of

Women Empowerment over time for the SHG members but no such change is observed for

the members of the control group.

Given the results in Table 3, the difference in the means between the two time periods, may

be interpreted by some as an increase of 26 percent in the level of women empowerment on

average for the group of SHG members. However, this is not the case since the means of

women empowerment for the year 2000 and 2003 can not be determined on an absolute scale.

Note that although women empowerment measures for 2000 and 2003 are on the same scale,

the origin of the scale is undetermined. We can only estimate the mean difference between the

women empowerment between these two time periods. What we can do is to fix the origin of

the Women Empowerment scale at the mean of women empowerment in 2000 and then

estimate the mean of Women empowerment in 2003. By this identification condition the

mean differences are equal the intercept term in the structural equation.

Table 2: Estimated Mean and Covariance Matrix for Women Empowerment

SHG Members, Sample size 805

WE00 WE03 Mean (T-value)

WE00 7.57 0.00

WE03 2.04 1.66 0.26*** (17.73)

Note: *** reflects that the mean values is significant at 1 percent

13
The result is non-significant at 1 percent and 5 percent level of significance.

21
Table 3: Estimated Mean and Covariance Matrix for Women Empowerment

Control group, Sample size 156

WE00 WE03 Mean (T-value)

WE00 0.33 0.00

WE03 0.23 0.20 0.076 (1.71)

Our results clearly indicate the evidence for a general increase in women empowerment for

SHG members over time. This however, does not imply that each and every woman who

joined the SHG program was empowered to the same degree or they all progressed at the

same pace. Some of the women members might have been more empowered than other

members within the SHG program, prior to their participation in this programme. But on the

average the SHG members were empowered over this time period. However, a similar

empowerment process cannot be observed for the control group.

It is difficult to say which factors are more important for empowering women. The

differences in pace of empowerment might be a result of various factors. Household and

village characteristics, cultural and religious norms within the society, behavioural differences

between the respondents and their family members, the kind of training and awareness

programs that the women have been exposed to. All these factors together are responsible for

the empowerment process.14 The nature and types of activities and the kind of program that

the women is exposed to, critically determines how empowering the impact of the SHG is on

women. The minimalist microfinance approach is not sufficient. An important direction for

future research, is a need to find which of these factors have a greater impact on empowering

women.

14
See Kabeer (1999) and Holvoet (2005)

22
The structural model that we develop in this paper addresses the non-ordinal character of the

key variables in our hypothesis. Using the RML approach, we empirically examined the

relation between the SHG participation and women empowerment. The results, which are

robust, strongly indicate that SHG members are empowered by participating in this

microfinance program in the sense that they have a greater propensity to resist existing gender

norms and culture that restricts their ability to develop and make choices.

23
REFERENCES

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Armendariz de Aghion, B. and J. Morduch. 2005. The Economics of Microfinance, MIT

Press.

Ashraf, N., D. Karlan and Wesley Yin. 2006. Female Empowerment: Impact of a
Commitment Savings Product in the Philippines, Working Paper, Yale University.

Bali Swain, R. 2007. Can Microfinance Empower Women? Self-Help Groups in India,
Dialogue, No. 37, ADA, Luxembourg.

Browning, M., and P.A. Chiappori. 1998. Efficient Intra-household Allocations: A General
Characterization and Empirical Tests, Econometrica 66: 1241-78.

Cheston S and Kuhn L 2002 ‘Empowering Women through Microfinance’, Draft,

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Frankenberg, E., and D. Thomas. 2001. Measuring Power, FCND Discussion Paper no. 113,
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Goetz AM and Gupta RS (1996) ‘Who takes the credit? Gender, power, and control over loan
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Hashemi SM, Schuler SR and Riley AP (1996), ‘Rural Credit Programs and Women’s
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Holvoet N (2005) ‘The Impact of Microfinance on Decision-Making Agency: Evidence from

South India’, Development and Change,vol. 36 (1)

Jöreskog, K.G., Sörbom, D. 1999. LISREL 8: Structual Equation Modeling with the
SIMPLIS Command Language. Chicago: Scientific Software International.
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Features. Chicago: Scientific Software International.
Jöreskog, K.G. 2002. Structural Equation Modeling with ordinal variables using LISREL.
Chicago: Scientific Software International.
Kabeer, Naila. 1999. Resources, Agency, Achievements: Reflections on the Measurement of
Women’s Empowerment, Development and Change, Vol. 30, pp. 435-464.

Pitt, M., and S.R. Khandker. 1998. The Impact of Group-Based Credit Programs on Poor
Households in Bangladesh: Does the Gender of the Participant Matter?, Journal of Political
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24
World Bank. 2001. Engendering Development: Through Gender Equality in Rights,
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25
APPENDIX

Table 1. List of Women empowering activities as listed by the SHG members in the
Focus Group Discussions
1. Overcoming the resistance from husband and other members of the family to join the
SHG.
2. Increased participation in decision-making within the household to issues that were
usually considered outside the domain of woman.
3. Improved status and increase in respect within the household.
4. Feeling fearless, open and confident
5. All group members learn to sign their names and some have joined adult literacy
programs
6. Adopting family planning measures
7. More mobile, can move out of the house and the village more frequently
8. Talking to the male persons in their village, which they were not confident to do before
because of cultural reasons
9. They have more information about the government programs due to their exposure and
can apply for them for their own betterment and the benefit of the community
10. Actively participating in the decision to send their children to school
11. Eradication of prostitution
12. Some women can actively engage in the decision of their marriage with the elders in her
household
13. Awareness about politics and engaged in political participation (by way of voting ) or
directly, by standing as a candidate in the local elections
Source: Bali Swain 2007.

26
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2007:24 Ranjula Bali Swain and Fan Yang Wallentin: DOES MICROFINANCE
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